As we close out 2025, the Federal Reserve has implemented three consecutive rate cuts, bringing the federal funds rate into the 3.50%–3.75% range. Looking ahead, markets and most analysts anticipate additional, measured rate reductions in 2026 as inflation continues to ease, with short-term rates trending toward a more neutral level of approximately 3%–3.5%.

One key dynamic expected to shape markets is a steepening yield curve. In this scenario, shorter-term bond yields decline alongside Fed cuts, while longer-term yields may remain elevated — or even rise — due to persistent inflation expectations and ongoing fiscal deficit concerns.

At Signet Financial Management, we believe the current environment calls for a disciplined approach that preserves near-term liquidity while protecting long-term income potential. One of the most effective strategies for achieving this balance is a bond ladder.

Unlike holding cash or investing in a single long-term bond, a thoughtfully constructed bond ladder is designed to navigate a wide range of interest-rate outcomes — providing flexibility, predictability, and resilience regardless of how rates move in 2026.

What is a bond ladder?

A bond ladder is a portfolio of individual, high-quality bonds with staggered maturity dates. Think of it as a literal ladder, where each “rung” represents a bond maturing in a different year.

• Structure: For example, an investor might divide capital into five equal parts and purchase bonds maturing in 2026, 2027, 2028, 2029, and 2030.
• The cycle: When the 2026 bond matures, the principal is returned and can be reinvested into a new “top rung,” such as a bond maturing in 2031 — keeping the ladder intact and continuously working.

Why choose a bond ladder over a cash account?

While high-yield savings accounts and CDs served investors well in recent years, they expose investors to reinvestment risk. If the Fed cuts rates further in 2026, yields on cash can fall quickly and without warning.

A bond ladder offers three key advantages:

1. Yield locking

By purchasing longer-dated bonds today, investors can lock in current yields for years—even if market rates decline.

2. Predictable cash flow

With known maturity dates and fixed coupon payments, a ladder provides clarity around both income and timing. This can be especially valuable for retirees or those with specific funding needs in 2026.

3. The best of both worlds

If rates rise, maturing bonds provide capital to reinvest at higher yields. If rates fall, longer-dated bonds continue to pay the higher yields secured earlier.

The Signet advantage: Active management

Building an effective bond ladder requires more than choosing maturity dates — it requires selecting the right bonds. Our advisors at Signet Financial Management manage every aspect of the process:

• Credit quality: We emphasize high-quality corporate and municipal bonds, typically rated “A” or better, to help reduce default risk.
• Tax optimization: For investors in higher tax brackets, we can incorporate tax-exempt municipal bonds to enhance after-tax income.
• Professional pricing: As a fiduciary firm, we access institutional bond markets and pricing that individual investors often cannot, which helps improve execution and value.

Would you like a complimentary review of your current fixed-income holdings to see how a customized bond ladder could add clarity and confidence to your 2026 plan?

In an era of shifting Fed policy, a disciplined structure is often the strongest defense. Let’s build your 2026 income stream on a foundation designed for stability — without relying on a crystal ball.

IMPORTANT DISCLOSURE

This material is provided for informational purposes only and does not constitute investment advice, an offer, or a solicitation to buy or sell any security or investment product. All investing involves risk, including loss of principal. Private credit investments are illiquid and suitable only for qualified investors who can bear these risks. Past performance is not indicative of future results.